Consolidated ITX Seminar-Naivasha 2023 Slides

INDIRECT TAX
SEMINAR
27 & 28 July 2023 at Sawela Lodge,
Naivasha
2023 Indirect Tax
Seminar
27 to 28 July 2023
Value Added Tax
By Stephen Ndegwa/Boaz Musina
27 July 2023
2023 Value Added Tax Highlights
➢ Heard of the ‘special table’? The Kenya Revenue Authority (KRA) has
enforced the implementation of TIMS and eTIMS in filing monthly returns.
➢ Digital supplies by Non Residents- Heightened scrutiny by KRA on
Implementation of Value Added Tax (Electronic, internet and Digital
Marketplace supply) Regulations,2023
➢ Finance Act 2023 has introduced amendments to the VAT ACT, 2013 e.g
zero-rating of inbound shipment, electric bicycles and introduction of VAT
on insurance compensation in respect of taxable supplies , among others…
PS: However, Finance Act, 2023 remains suspended by the courts.
Page 4 26 July 2023 Indirect Tax Training

Agenda
Introduction VAT (Electronic Tax Invoice)

Regulations, 2020
VAT Provisions VAT (Electronic, Internet &

Digital marketplace supply)
Regulations, 2023
VAT withholding Finance Act 2023
VAT Refunds VAT planning

Introduction
Introduction
➢ VAT is levied on consumption of taxable goods and services supplied or imported into Kenya.
➢ VAT is collected by registered persons who remit it to the commissioner.
➢ Incidence and impact of VAT is borne by the final consumer of the supply (goods and
services)
➢ Generally input tax qualifies for deduction against output tax .
➢ Tax point is the main point of reference.
➢ Special consideration required for business with mixed supplies.
➢ Businesses wholly and exclusively dealing in exempt supplies are NOT required to register for
VAT.

VAT
Provisions
VAT Provisions
Charge to Tax (Section 5) VAT Registration (Section 34)

► Local supply of taxable goods and ► The registration threshold is an annual or
services expected turnover of KES. 5M.
► Importation of taxable goods ► Taxpayers with lower turnover can also register
► Importation of taxable services through voluntary registration after satisfying
including electronic services certain conditions.
Determining a taxable supply

► Is it taxable?
► Is it made by a taxable person?
► Is it made or provided in Kenya?
► Is it made for furtherance of taxable
supplies?

VAT Provisions
Scope of VAT
Standard Rate (16%) Zero-rated (0%) Exempt Other considerations
Supplies that are Supplies highlighted in Supplies highlighted in Reduced Rate (8%) on
neither in the first or the Second schedule of the First Schedule of petroleum products-
second schedule; the VAT Act such as; the VAT Act e.g This has been deleted
• Professional services • Exportation of goods • Financial services by Finance Act 2023.
• Furniture • Fertilizer of chapter • Unprocessed tea Out of scope- this
• Rental income from 31 • Medical services includes
commercial property • Transportation of • Unprocessed milk reimbursements/disburs
• Agency fees goods originating ement supported by
• Advertising from Kenya to a third party
destination outside documentation
Kenya Triangular sales- e.g ex
works

VAT Provisions
Output Tax
► Output Tax means tax which is due on the taxable supplies/sales.
► VAT is due and payable the earlier of the following (Tax point);
► The date the goods are delivered or services performed;
► The date a certificate is issued by an Architect, surveyor or any person

acting as a consultant or in a supervisory capacity in respect of the
supply;
► The date an invoice is issued in respect of the supply or
► The date all or part payment is received for the supply

VAT Provisions
Input Tax
► “Input tax” means tax payable on the supply to a VAT registered person i.e. VAT on
purchases /imports
► Input tax is deductible by a registered person provided that:
▪ The person is in possession of valid documentation such as a tax invoice or a certified
copy of original tax invoice.
▪ Corresponding output tax must’ve been declared by the supplier.
▪ The amount thereon has not been previously deducted.
▪ Not more than 6 months have lapsed after the input tax became due and payable.
▪ VAT is not restricted (e.g. input tax on acquisition, leasing and hiring and repairs of
passenger vehicles is restricted).
▪ Tax does not relate to exempt supplies either directly or upon apportionment.

VAT Provisions
Restricted Input Tax
► The acquisition, leasing or hiring of passenger cars or minibuses, and the repair and
maintenance thereof including spare parts.
NB: This does not apply where they are acquired in the ordinary business of dealing in, selling
and hiring of passenger vehicles.
► Entertainment, restaurant and accommodation services**
** Input is allowed where the services are provided in the ordinary course of the business of
the person and are not supplied to an employee. Where services are provided the recipient is
away from home for the business purposes of the recipient.

VAT Provisions
Input Tax Apportionment

► Sec. 17(6) of the VAT Act provides for apportionment of input VAT in case of both taxable and
exempt supplies such that
▪ Full deduction of input tax in relation to taxable supply.
▪ Full exclusion of input tax in relation to exempt supplies.
▪ Apportionment of shared input tax using the following ratio:
Deductible VAT = Value of taxable supplies X Input tax
Value of Total Supplies
▪ No input tax is deductible where exempt supplies are more than 90% of the total supplies
▪ Full deduction of input tax where exempt sales is less than 10%.

VAT Provisions

VAT Provisions
Reverse VAT (VAT on Imported Services)

► Supply of imported services means a supply of services that satisfies the following
conditions:
► The supply is made by a person who is not a registered person to any person
► The supply would have been taxable if it had been made in Kenya and taxable person
would not be entitled to full deduction of input tax
► Examples of imported services include:
► Consultancy services offered by providers outside Kenya to importer
► Management services offered by providers outside Kenya to importer
► Supply of imported services to an importer is deemed as self supply.

VAT Provisions
Reverse VAT (VAT on Imported Services)

► Reverse VAT on taxable imported services is payable to the revenue authority to the extent
it relates to provision of exempt supplies, that is;
❖ If a person is making mixed supplies(taxable and exempt supplies), he would be required

to account for reverse VAT for the portion of imported service(s) that relates to making
the exempt supplies
❖ If a person is making exempt supplies only, he would be required to account for reverse
VAT applicable on entire value of imported service(s).

VAT Withholding

VAT Withholding
► Appointed agents include government ministries, parastatals or any other person appointed
by Commissioner.
► Only 2% of the taxable amount is to be deducted and remitted to KRA.
► Withholding VAT is due on or before the 20th day of the month following the month in which
the deduction has been made. The FA 2023 has amended this to payment within 5 working
days.
► A penalty of 10% of the amount due is levied for failing to withhold or failing to remit the
amount of tax withheld by the due date.
► No VAT is withheld on the payment of supply of exempt goods, services, zero-rated supplies
and w.e.f 01.07.2022 taxable supplies made to official aid funded projects.

VAT Refunds
VAT Refunds
► Tax payers are allowed to claim VAT refunds in relation to:

▪ Input tax incurred in making zero rated supplies
▪ Tax paid in error, - (administered under TPA w.e.f 01.07.2022)
▪ Output VAT relating to bad debts, or
▪ Withholding VAT
▪ Input tax with respect to taxable supplies made to an approved official aid funded
project(exempt) by manufacturers.
>Deduct and carryfoward input - W.e.f 24.Dec 2020
>Deduct and apply refund – w.e.f 1.July 2022
► For business with both taxable and zero rated sales, refund is restricted to making zero rated
supplies.
► Refund is determined as follows in respect of excess input from zero-rated supplies:
Refund amount = Value of zero rated supplies X Deductible input tax for the month
Total Value of taxable supplies
**In some cases, the formula results in a VAT refund amount higher than excess input tax/month
Electronic
Tax Invoice
VAT (Electronic Tax Invoice) Regulations 2020
► All VAT registered persons are required to comply with the requirements of the Value Added
Tax (Electronic Tax Invoice) Regulations,2020.
► Effective date was 01 December 2022.
► KRA piloted the eTIMS on 01 February 2023 which can be accessed through computers and
mobile phone Apps. eTIMS is suitable for;
► VAT registered taxpayers who are yet to be onboarded and are facing challenges
integrating with TIMS ETR devices.
► Taxpayers dealing in bulk invoicing and facing capacity/performance issues with invoice
transmission.
► VAT registered taxpayers facing challenges integrating with TIMS ETR devices.
► Failure to comply with the regulations is subject to a penalty of KES 1 million or 3 years
imprisonment or both as stated under the VAT Act.

VAT (Electronic Tax Invoice) Regulations 2020
► An invoice should have the following;

• PIN of the registered user of a register
• Time and date of tax invoice
• Serial number of the invoice
• Buyer’s PIN
• Total gross amount
• Total tax amount
• Item code of supplies
• Brief description of goods and services
• Quantity of supply
• Unit of measure
• Tax rate charged
• Unique register identifier- Control unit serial number
• Unique invoice identifier-control unit invoice number
• Quick response (QR) code
• Any other requirement specified by the Commissioner

Electronic, Internet
and Digital Marketplace
supplies
VAT (Electronic, Internet and Digital Marketplace
supplies) Regulations
► The Regulations guide that all taxable electronic, internet and digital marketplace supplies
made in Kenya will be subject to VAT at 16%.
► An electronic, internet or digital marketplace supply shall be deemed to have been made in
Kenya where the recipient of the supply is in Kenya and where;
▪ the recipient of the supply is in Kenya;
▪ the payment proxy details of the recipient of the supplies is in Kenya;
▪ the residence proxy of the recipient is in Kenya.
► The VAT registration threshold of KES 5 million shall not apply as stipulated under Section
34, VAT Act 2013.
► Digital suppliers are also required to issue invoices indicating the taxable value, tax amount
and the customer pin. Taxpayers may use this to claim input tax.

VAT (Electronic, Internet and Digital Marketplace
supplies) Regulations
Examples
► Subscription-based media including news magazines and journals.

► Over-the-top services including streaming television shows, films, music, podcasts and any
form of digital content
► Software programmes including software, drivers, website filters and firewalls
► Electronic data management including website hosting, online data warehousing, file
sharing and cloud storage services
► Electronic services specified under section 8(3).
► Sales, licensing, or any other form of monetizing data generated from users’ activities.
► Facilitation of online payment for, exchange or transfer of digital assets excluding services
exempted under the Act.

VAT Planning
VAT Planning
► Speedy collection of debts
► Application for VAT refunds where applicable
► Deferral of input tax
► Compliance to minimize possible penalties by KRA
► Automation and use of technology (GTP & GVRT)
► Regular tax trainings and tax health checks

Finance Act 2023
Highlights
Finance Act 2023 Highlights
The Finance Act has brought about the following changes to the VAT Act
effective 01 July 2023
1. Clarification on the Place of Supply
► The Finance Act has amended Section 8(2) of the VAT Act by replacing the words “not
registered person” with “a registered or unregistered” person.
► The amendment seeks to clarify that the place where a non-resident supplier provides
services shall be deemed to be in Kenya, whether the services are provided to a registered or
unregistered person.

2. Clarification on the time of supply of goods and services

► The Finance Act has amended Section 12 of the VAT Act by introduction subsection 12
(1A) which guides that the time of supply in respect of the national carrier shall be the
date on which the goods are delivered, or services performed.
► The amendment implies that the tax point for government operated carriers is the date on
which the goods/services are delivered/performed.
3. Clarification on claim of Input VAT
► The Finance Act has amended Section 17(2) of the VAT Act to clarify that input tax will not
be claimable by a registered person if both (i) documentation is lacking and (ii) the
supplier has not declared the sales invoice in the return.
► The amendment aligns with the implementation of the TIMS/eTIMS because the purchaser
should be able to confirm that the supplier has declared the supplies before the purchaser
claims input.

4. Expansion of the scope of taxable supplies to include compensations for

loss
► The Finance Act has amended Section 17 by adding a new subsection 17 (9) which provides
that compensation arising from loss of taxable supplies should be treated as a taxable
supply and the resultant VAT should be declared such that;
a) if the compensation includes value added tax, the compensation shall be declared and the
value added tax thereon remitted to the Commissioner; or
b) if the compensation does not include value added tax, the compensation shall be declared
and subjected to value added tax and the tax remitted to the Commissioner.
► Insurance compensation will therefore attract VAT at the standard rate if it relates to taxable
supplies where the bonafide owner of the taxable supplies had deducted input tax.
► Note: The Finance Act 2023 does not provide guidance on who is responsible for the VAT on
the compensation. However, we are of the view that the registered person who initially
deducted the input tax should be responsible for declaring the VAT on the compensation
received for a loss of taxable supplies.
5. Conditions for claim of VAT refunds on bad debts

► The Finance Act has deleted the provisions of the VAT Act (Section 31 (1))that provided
for refunds of bad debts and substituted it with a new provision.
► As per the new provision, where a registered person has made a supply and accounted and
has paid VAT on that supply but has not received any payment from the purchaser within a
period of three (3) years from the date of the supply or where the person to whom the
supply was made has been placed under statutory management through the appointment
of an administrator, receiver, or liquidator, the registered person may apply to the
Commissioner for refund of the tax involved.
► An application for refund shall be made before the expiry of ten (10) years from the date of
supply. Notably, this is an increase of time period from the current period provided of four
years.

5. Conditions for claim of VAT refunds on bad debts
► The Act has also provided that the refund application shall be made in compliance with
provisions of the Tax Procedures Act (Section 47 (5) ) which provides that the
Commissioner shall apply the overpayment in the following order;
i. payment of any other tax owing by the taxpayer under specific tax law,
ii. any other tax owing by the taxpayer under any other tax law
iii. any remainder refunded to the taxpayer.
► The Act also provides that the refund may also be credited to the taxpayers’ record for use
against future VAT liabilities
► Further, the Act provides that the taxpayers are now required to pay back any tax refunds
received from the Commissioner within sixty (60) days where the tax refunded is
subsequently recovered from the recipient of the supplies. Previously the payback period
was thirty (30) days- so this is a welcome change.

6. Clarification on Keeping of records
► The Finance Act 2023 has amended Section 43 of the VAT Act to allow taxpayers to keep
records such as invoices outside Kenya.
► This is a welcome move as it removes the restriction to keep records within Kenya.
Taxpayers will be allowed to keep records in their respective jurisdictions, however, they
will be required to provide these records upon request by the Commissioner.
7. Clarification VAT registration threshold for suppliers of imported digital

services
► The Finance Act 2023 has repealed Section 34 of the VAT Act to clarify that a supplier of
digital services through the internet, electronic network or a digital marketplace will be
required to register for VAT whether or not they meet the registration threshold of KES
5 million.

8. Amendment of status of various supplies

➢ The Finance Act 2023 has amended the VAT status of the following products to the standard rate (16%);
Previous
Description New rate
status
• Petroleum products i.e Petrol, kerosene, aviation fuel, jet fuel, etc 8% 16%
• Diagnostic kits or laboratory reagents and their certified reference materials of Exempt 16%
heading 38.22 upon approval by the Cabinet Secretary responsible for matters
relating to health;
• Fetal Doppler-Pocket (Wgd-002) Pc and pulse oximeter-finger held (Gima brand) Exempt 16%
Pc of tariff number 9018.19.00 upon approval by the Cabinet Secretary
responsible for matters relating to health
• Taxable services for direct and exclusive use for the construction of specialized Exempt 16%
hospitals with accommodation facilities upon recommendation by the Cabinet
Secretary responsible for health, who shall issue guidelines for the criteria to
determine the eligibility for the exemption

9. The Finance Act has amended the VAT status of the following products
from Taxable (16%) to Exempt
• Taxable services imported or locally purchased by a company that is both:
a) Engaged in business under a special operating framework arrangement with the Government
b) Incorporated for purposes of undertaking the manufacture of human vaccines or other manufacturing activities
including refining and whose capital investment is at least KES 10 billion, subject to approval of the Cabinet Secretary
for the National Treasury, on recommendation of the Cabinet Secretary for Health.
• All goods and parts thereof of Chapter 88.
• Plant and machinery of chapter 84 and 85 imported or locally purchased by manufacturers of pharmaceutical products or
investors in the manufacture of pharmaceutical products upon the recommendation of the Cabinet Secretary responsible
for matters relating health.
• Taxable supplies made to or by a school feeding programme recognized by the Cabinet Secretary responsible for matters
relating to education.
• Taxable goods, inputs and raw materials imported or locally purchased by a company which is-
a) engaged in business under a special operating framework arrangement with the Government; and
b) incorporated for purposes of undertaking the manufacture of human vaccines or other manufacturing activities
including refining; and whose capital investment is at least ten billion shillings, subject to approval of the Cabinet
Secretary for the National Treasury, on recommendation of the Cabinet Secretary for health.

The Finance Act has amended the VAT status of the following supplies to zero-rating:
Description Previous New
Rate Rate
• Bioethanol vapour (BEV) Stoves classified under HS Code 7321.11.00 (cooking Exempt 0%
appliances and plate warmers for liquid fuel)
• Exportation of taxable services 0%/16% 0%
• Inbound international sea freight offered by a registered person. 16% 0%
• Liquified petroleum gas (LPG) 8% 0%
• All tea and coffee locally purchased for the purpose of value addition before * 0%
exportation subject to approval by the Commissioner-General.
• The supply of locally assembled and manufactured mobile phones. 16% 0%
• The supply of motorcycles of tariff heading 8711.60.00 16% 0%
• The supply of electric bicycles. 16% 0%
• The supply of solar and lithium ion batteries. 16% 0%
• The supply of electric buses of tariff heading 87.02. 16% 0%
• Inputs or raw materials locally purchased or imported for the manufacture of 16% 0%
animal feeds.

* Currently, unprocessed green tea is exempt while supply of tea for export to tea auction centres is zero-
rated. Now zero-rating ‘All tea and coffee locally purchased for the purpose of value addition before
exportation’ is a welcome move as it aligns with VAT status of exported goods.

eTIMS IMPLEMENTATION
EY INDIRECT TAX TRAINING
Kenya Revenue Authority

July 2023
TIMS BACKGROUND
ETR machines were introduced in 2005 as a record
keeping tool to capture the details of sales
transactions by VAT registered taxpayers.
In order to better streamline VAT administration,

KRA introduced the electronic tax invoice
During the first phase, this was achieved through

implementation of the Tax Invoice Management
System (TIMS)
INTRODUCTION TO eTIMS
1. KRA is leveraging on technology
for effective revenue
administration
2. The successful roll out of the

Tax Invoice Management
System (TIMS) roll out phase
which concluded on 30th Nov 3. KRA has taken into consideration
2022 achieved the objective of feedback from stakeholders and
enabling VAT registered taxpayers to embark on the next
taxpayers transmit tax invoices phase of TIMS implementation by
on real time or near real time developing eTIMS
basis
INTRODUCTION TO eTIMS
4. The main difference between the two
solutions is that TIMS is device based
(ETR), while eTIMS provides
affordable software solutions to
taxpayers geared towards e invoicing
5. eTIMS is mainly targeting the active
VAT taxpayers who have not on
boarded on TIMS by upgrading their
ETR devices
6. The Pilot phase was done in February
2023 & full roll out commenced
7. 1st June 2023- Mandatory Phase and
enhancement of the enforcement
measures to bolster compliance
OBJECTIVES
OF eTIMS
Provide Minimize
additional the cost of
options to compliance
taxpayers
Increase Tax
revenue
Address the
“missing Increase tax
trader” compliance
phenomena and
- SCM Groundwork to accountability
expand the
reach to
taxpayers in
other tax heads
BENEFITS TO VAT TAXPAYERS
Flexible-Variety of devices to
Foster fair business support taxpayers at Faster processing of
environment VAT refunds
minimum cost
-Upgradeable software
Stock Mgt Module-

assist taxpayers Simplified VAT Return Non intrusive
maintain their own filing verification of tax
inventory (Pre-Filled)-made possible processes
through integration with
iTax & iCMS
ELIGIBILITY CRITERIA FOR eTIMS
The following are key considerations in determining the taxpayers to
onboard on eTIMS:
1. Taxpayers who have not onboarded on TIMS by upgrading their ETR
2. Taxpayers in the process of complying, but facing challenges

integrating with TIMS ETR devices due to complexity of billing
systems
3. Taxpayers who have businesses but are technologically challenged

i.e. they do not have computers and do manual invoicing
4. Taxpayers dealing in bulk invoicing and facing capacity/performance

issues with invoice transmission
5. Voluntary taxpayers and Newly Registered VAT Taxpayers

eTIMS SOFTWARE SOLUTIONS
1. eTIMS Paypoint (Windows) - suitable
for taxpayers selling goods at a single
location with a single paypoint/cashier till.
Runs on a computer/laptop with Windows
10 & above Operating System. Contains
stock mgt module
2. eTIMS Multi-Paypoint (Windows) -
suitable for taxpayers selling goods and
having multiple locations and pay
points/cashier tills. Runs on a
computer/laptop with Windows 10 & above
Operating System. Contains stock mgt
module
3. eTIMS Paypoint (Android) – suitable
for taxpayers selling goods and runs on a
tablet with android version 8 & above
Operating System. Contains stock mgt
module
eTIMS SOFTWARE SOLUTIONS
4. eTIMS online portal – suitable for
taxpayers in service sector and do not sell
supplies/goods. Runs as a web application
accessible on a browser
5. eTIMS Lite (VAT) – suitable for

taxpayers in service sector and do not sell
supplies/goods. Runs on a smart phone with
android version 8 & above Operating System
6. Virtual Sales Control Unit (VSCU) &

Online Sales Control Unit (OSCU) –
provides for a system to system integration
between the taxpayer’s billing system and
KRA
eTIMS SOFTWARE ONBOARDING PROCEDURE
1. The VAT taxpayer signs up on the eTIMS portal & makes an application for the
preferred software option. The taxpayer can only select one software option at
any given time
2. Authorized KRA officers process the applications by conducting some due

diligence through a KYT (Know Your Taxpayer) interview to determine the
following:
i. nature of business (service industry or supplies goods or both)
ii. frequency of invoicing
iii. if the taxpayer has access to a computing device – computer, laptop,
tablet, smartphone
iv. if the taxpayer has access to internet
The information provided above will determine the software option suitable for
the taxpayer and facilitate the approval process
3. The KRA officer schedules a date and time to install, configure and train the
taxpayer on how to use the eTIMS software for purposes of invoicing
SIGN UP/REGISTRATION PAGE
Type
https://etims.kra.go.ke/basic/login/ind
exLogin in your browser and click sign
up button
SIGN UP COMMITMENT FORM
ETIMS SAMPLE INVOICE: ONLINE PORTAL
SAMPLE INVOICE: eTIMS PAYPOINT WINDOWS
SAMPLE INVOICE: PAYPOINT
ANDROID/PDA/LITE VAT VS TIMS
eTIMS SYSTEM TO SYSTEM INTEGRATION
KRA has also provided for system-to-system integration between
it and the taxpayer's invoicing systems via API. This can be
achieved through two ways;
i) Implementation of an Online Sales Control Unit (OSCU) for
entities whose invoicing system operates online or;
ii) Implementation of a Virtual Sales Control Unit (VSCU) for
entities undertaking bulk invoicing and whose invoicing is
not always online.
The process will entail development, testing, vetting and
certification of taxpayers with capacity to self-integrate or those
intending to be 3rd party software developers (integrators) who
will facilitate taxpayer integration process.
NOTE: The certification of system to system integrators is ongoing and

requirements are available on KRA Website
ADDRESSING EMERGING ISSUES
No ISSUE MITIGATION
1 Taxpayers unable to sign up on eTIMS • Data migration done by KRA ICT team for
system due to missing details on the system, the details to appear on eTIMS system.
Newly registered VAT taxpayers & on or
recently removed from the special table.
2 Taxpayers unable to access the phone • The taxpayer’s phone number to be

number registered on itax hence cannot get changed from their profile/Backoffice
One Time Password thereafter, it will be updated on eTIMS
system
3 Taxpayers unable to get One Time Password Taxpayers to activate promotional texts on
even with the correct mobile number their mobile numbers
One Time Password is not sent to landline
numbers
4 Taxpayers using software solutions installed Taxpayers to purchase a bluetooth printer to
on mobile phone/tablet are unable to print enable them print invoices
invoices.
5 Taxpayer using software solutions installed Taxpayers need to set their device printer to
on either laptops or desktops are unable to PDF as default to enable them
download/save invoices generated as their save/download invoices
devices are connected to a printer
KEY TO NOTE
1. Installations of eTIMS software solutions is done by KRA officials and not ETR
suppliers.
2. Where an agent/third party intends to do eTIMS software installation on behalf of a
trader, the trader is required to provide the following details via email:
• An introductory letter-Should be signed and stamped and preferably be on the

taxpayer letterhead. Should contain the contacts of the taxpayer (Mobile
number as registered in iTax)
• Filled commitment form
• Confirmation of Directorship-Copy of ID and CR12
3. Taxpayers who have automated billing system are required to be on boarded
VSCU/OSCU. A list of the approved third party vendors will be published on the
website after vetting and approval for integration.
4. Effective 1st June 2023, all VAT Registered taxpayers are required to exclusively
accept electronic tax invoices for purposes of input tax and refund claims. PN. Dated
9th May 2023 and reminder on 6th June 2023
Customs &
International Trade
By Hadijah Nannyomo/Seraphine
Anamanjia/Kenneth Kimathi
27th July 2023

Agenda
1 Introduction
2 Imports and Exports
Procedures
3 Customs Valuation 4
Duty Saving
Opportunities
5 Post Clearance Audits

6 Finance Act 2023 & EAC
Gazette 2023 Updates
7 Emerging Trends in
International Trade

Introduction
Introduction to Customs
► Customs involves the movement of goods across borders for trade or other purposes. Since
Kenya is a partner state of the EAC, Kenyan customs processes are regulated by Community
law which is the East African Community Customs Management Act, 2004 and the East
African Community Customs Management Regulations 2010.
► Customs Department functions: revenue collection, border protection, policy formulation,

statistics collection, trade facilitation, preferential trade implementation.
► Customs procedure is commenced through a declaration made by licensed clearing agent on

behalf of an importer or exporter. The retention of a licensed clearing agent does not absolve
the importer from their obligations under customs law.
► There are different types of customs regimes e.g. imports, exports, warehousing, transit,
transshipment.

What is Customs Duty?
► Customs duty is the collective term for levies and taxes accruing from diverse customs
transactions.
► It includes import duty, excise duty, import VAT, IDF, RDL, export duty etc.
► Import duty is a tax levied on imported goods from a territory considered foreign while
Export duty is a tax levied on specific goods destined for foreign. Foreign means outside the
East Africa Community Customs Union.
How is duty charged?
► Usually as a percentage based on “customs” value –ad valorem
► Some few items attract specific rates of tax based on quantity such as litres, kilograms,
units etc.
What are the rates?
► The EAC has a 4-band structure for import duty rates which are 0%, 10%, 25% and 35%. The
import duty rates depend upon the type of product imported. Sensitive items attract higher
rates outside these bands. There are also stays of application of CET.

Imports & Exports Procedures
Import and Export
► Imports mean to bring goods or cause to be brought into a partner state from foreign.
► Export means to take out goods or cause to be taken out of a partner state.
► Transit means to move goods from foreign, through one or more partner states to foreign.
► Transfer means to move goods or cause to be moved from one partner state to another.
►There are different customs regimes with attendant terms and conditions which can be
applied at the time of importation:
• Home consumption
• Warehousing
• Transit
• Transshipment
• Export Processing Zone (EPZ)
• Special Economic Zone (SEZ)

Import Procedure – Home consumption regime
Import procedure
Import Draft entry Tax payment Cargo release steps
Order confirmation Declaration Form prepared
Central Procurement Final shipping Draft entry Duty payments Cargo is verified • Order
negotiates prices documents shared
with customs
prepared by the
customs agent
made against
lodged entry by
for non-AEO
clients to
confirmation
with supplier
agent importer to KRA ascertain values,
Importer confirms
TI, exemptions • Import
Contract loaded onto etc. AEO
ERP, order created IDF prepared by
customs agent
correctness of
prepared entry
Entry passes upon consignment go
payment of duty to physical release
Declaration
on ERP
before submission (iCMS) stage after duty Form application
payment and are
Shipping schedule Notice of cargo
updated and arrival from Entry is lodged
ready for payment
not subjected to
verification. • Entry
preliminary import shipper
documentation of duties If customs is preparation and
satisfied with the
shared
consignment tax payment
release is granted.
If not the
controversy
• Cargo release
process
commences

Import Documentation
► Import documentation play a vital role in supporting the declaration. They are required to
enable customs processing and final release. They include:
Key documents
Commercial Invoice: value, incoterms, quantity, discounts, payment terms, goods description, parties
Packing list: quantity, weight/capacity, goods description, marks & numbers
Import declaration form: TI, value, origin, goods description,
Freight invoice/note: freight value, goods movement, parties
Marine cover note: premium paid, insured value
Bill of lading/air waybill: goods description, weight, marks & numbers, TI
Certificate of conformity (COC): TI, goods description
Import permit
Additional documents
Preferential certificate of origin: signatories, goods description
Exemption from PVOC
► Generally imports attract customs duties subject to exemptions, remissions or preferential
treatment.

Export Documentation Requirements
► Export documents required to support an export declaration include:
Export to Foreign Export to EAC partner states
➢Commercial invoice ➢Passed import entry in destination country

➢Packing list ➢Stamped exit note
➢Certificate of origin ➢Cargo manifest (C2)
➢Bill of lading ➢Commercial invoice
➢Packing List

Customs Valuation
Customs Valuation
Freight
Cost of transport
► What is of the imported
goods to 1st port
customs of entry
Excluded for Insurance
valuation?
Cost
airfreight (18.5
of FOB) Actual
insurance cost
or 1.0 % of C&F
► Why
customs
Customs
Valuation? Value

WTO GATT Valuation methods
Method 1
► Valuation is the determination of the cost Transaction Value
of an item for purposes of levying ad Method
valorem duties.
► There are 6 valuation methods: Method 6 Method 2

Fall/Residual Value Transaction Value
Method of identical goods
► Transaction Value Method
► Transaction Value of Identical Goods
► Transaction Value of Similar Goods
► Deductive Value Method Method 3
Method 5
► Computed Value Method Computed Value Method
Similar Goods Method
► Fall Back Value Method
► Valuation methods are applied in a

hierarchical sequence until an acceptable Method 4
method is established. Deductive Value Method

Transaction Value Method ( Method 1)
✓ Price Actually Paid or Payable

✓ For goods when sold
✓ For exports to the country of importation
✓ Adjustment in accordance with Article 8

Valuation Method-Transaction Value
Transaction Adjustments
PAPP (Art.1)
Value (Art. 8)
✓ Total Payment made or to be
made by buyer to seller
All payments made or to
✓ Payment made directly or
Indirectly
be made as a condition
of sale of the imported
✓ Payments made in various forms goods,
Cash, LOC, Negotiable Instruments)

Transaction Value- No sale
Transactions where there is no sale- Transfer of ownership
for a consideration
✓ Free Consignments
✓ Goods imported on consignment ( not profit sharing transaction)
✓ Goods imported by agents who do not purchase the goods
✓ Goods imported by branches which are not separate legal entities
✓ Goods imported under a hire or leasing contract
✓ Goods supplied on loan,
Proper documentation :financial statements , invoices, agreements etc

Transaction Value- Sale for Export
✓ Sold for export to country of importation excludes sales to country

of export or a third one.
✓ It involves an Actual International Transfer of goods
✓ It does not matter where the buyer and seller are
✓ Ensure proper documentation including detailed role of each party

in multiparty transactions, paper trail showing the structure of the
transaction.

Transaction Value- Exclusions
✓ Trade Discounts Discounts are not part Price Actually Paid or Payable provided they are
supported by documents and criteria; Advance Payment Discounts, Cash Discount, Quantity
Discount ,Trade Discounts, Clearance sale Discount
✓ Any expenditure incurred for the construction, erection, assembly or maintenance of or

technical assistance provided in respect of the imported goods after importation;
✓ The cost of transport and insurance within Kenya
✓ Any duties and taxes paid or payable by reason of the importation of the goods or sale of the
goods in Kenya
✓ Any duty or tax applicable in the country of exportation from which the goods have been or will
be relieved by way of a refund, drawback, rebate, or remission;
✓ Interest charged in respect of the price payable for the goods;

Transaction Value- Limitations
✓ there are restrictions as to the disposition or use of the goods by
the buyer. (Law and public authorities, Geographic
locations ,Charity display )
✓ Sale or price is subject to condition or consideration for which a

value cannot be determined with respect to the goods being
valued.
✓ Part of the proceeds of any subsequent resale, disposal or use

of the goods by the buyer will accrue to the seller and an
appropriate adjustment cannot be made under Article 8.
✓ The buyer and seller are related, and the transaction value is
not acceptable under the provisions of paragraph ( business
partners, employer/employee/ control/controlled by third party,
members of one family.
Transaction Value- Adjustments
Inclusions
1.(Compulsory Adjustments)
2. (Optional Adjustments):
“2. The legislation of each WCO Member shall

provide for the inclusion in or the exclusion
from the customs value, in whole or in part,
of the following:³
8.1 a) Commissions,
i) Selling Commissions and brokerages
ii) The cost of containers, 8.2.1.Cost of transport,
iii) The cost of packing
8.2.2. Insurance,
8.1. b) Assists,
8.2.3. Loading, Unloading, & Handling Charges.
8.1.c) Royalties & License Fees,
8.1. d) Proceeds of any subsequent resale

Transaction Value-Importer’s Responsibility
✓ The conditions for the use of Method 1 are fulfilled
✓ The declared value includes the total payment made or to be made by the buyer of the
imported goods
✓ The declared value includes all additions necessary
✓ The required supporting documents are available if requested
✓ The details of the declaration of facts about the value correspond with the supporting
documents;
✓ The Customs declaration is consistent with any Customs rulings applicable
✓ The declared value is realistic in the light of the commercial practices of the industry and
identical or similar goods
Valuation methods – Method 2 & 3
Method 2: Transaction Value of Identical Goods Method 3: Transaction Value of Similar Goods
The Goods must be identical in all respects The goods must be similar- goods may not be alike
including:- in all respects but have like characteristics and
components which make them commercially
• Physical characteristics
interchangeable (can perform same functions)
• Quality
• Reputation
► The goods should be produced in the same country as the goods being valued and exported around the
same time.
► The transaction value of identical and similar goods can be adjusted upwards and downwards to account
for the following differences:-
► Commercial level e.g., wholesale vs retail
► Quantity
► Commercially significant difference e.g., transportation costs due to different modes of transport used
or distance covered

Valuation Methods – Method 4,5 & 6
• Method 4: Deductive value
• Resale price in the country of importation less:
• Commissions/profit margin
• Transportation and insurance costs
• Customs duties, import taxes and in-country taxes
• Method 5: Computed value

• Sum of:
• Materials, fabrication and other processing costs
• Profit and general expenses expected in the production of similar goods
• Normal additions to the transaction value (e.g. commissions, assists, packing costs)
• Method 6: Fallback method

• Used in cases where no sale takes place, but items still move cross border e.g. Free samples, gifts
• Typically based on net present value of payments, book value of assets or independent appraisal for leased goods

Duty Saving & Planning
Opportunities
Introduction to Duty Saving and Planning Opportunities
► Effective Customs planning could deliver Customs duty savings, help companies improve their
bottom-line and achieve cash-flow savings, improve working capital. Taxpayers and businesses can
take advantage of various duty saving/ deferral opportunities which include:
Tariff
Duty Refunds,
Optimization and Free Trade Bonded
Rebates, and
Customs Agreements warehousing
Drawbacks
Valuation
Inward and Manufacturing

Exemptions Duty Remission
Outward Under Bond
regime Scheme
processing (MUBs)
Export Processing Special Economic

Zones (EPZs) Zones (SEZs)

Tariff Optimization and Customs Valuation
Tariff Optimization Customs Valuation
► Correct tariff classification can prevent overpayment of ► Ensure imported goods are valued in
duties. The EAC CET has a 4-band structure (0%, 10%, accordance with legal requirements.
25%, 35%). Declaring a higher tariff could lead to Careful not to include costs that
higher costs.
should not form part of Customs
► How to > Seek advance rulings from the revenue value. Be wary of benchmark or test
authority > Consult with Customs experts for tariff values applied by Customs
reviews (e.g. EY) prior to making declarations authorities at times.
► In addition, utilize part-shipment facility for machinery ► How to seek customs valuation
and equipment of Chapters 84 and 85 to clear
guidance to avoid costly valuation
machines (in disassembled or unassembled state)
imported in several consignments over a period under
disputes (can include offences) >
a single tariff. Engage Customs experts for
guidance
► How to > Make a request to Customs (Policy Unit)
attaching relevant documents

Duty Refunds, Rebates, and Drawbacks
► Duty drawback is a refund of all or part of any import duty paid in respect of goods
exported or used in a manner prescribed as a condition for granting duty drawback. Claim
must be presented within 12 months from date of exportation. Drawback also allowed on
goods imported for use in manufacture of goods which are exported or transferred to an EPZ.
► Rebates of duty are allowed where imported goods are damaged before they are delivered
out of Customs control subject to the set conditions. Discretion lies with the Customs
authority to apportion the allowable amount in proportion to the damage sustained.
► Duty refunds are allowed in part or whole where: goods have been damaged or pillaged
during voyage, or damaged or destroyed while subject to Customs control; goods were
returned unused to the seller; or duty has been paid in error. Claim should be within 12
months from date of payment of duty.

Free Trade Agreements (FTAs) & Preferential Tariff Concessions
► FTAs and preferential tariff concessions are beneficial in reducing or eliminating tariffs and
trade barriers to encourage international trade.
► Below are the FTAs and PTCs that businesses can take advantage of to enhance growth,
increase access to markets, cooperate internationally, and drive competitiveness:
• The East African Community (EAC)
• The Common Market for Eastern and Southern Africa (COMESA)
• The African Continental Free Trade Area (AfCFTA)-offers great promise
• African Growth and Opportunity Act (AGOA)-duty free access into U.S. market, products include textiles,
apparels, handicrafts
• Generalized System of Preferences (GSP)
• ACP/ Cotonou Partnership Agreement
• Bilateral Agreements
• Prospects: Kenya-US FTA negotiations, UK-Kenya Economic Partnership Agreement (EPA), Kenya-EU EPA

Duty Remission Scheme
► In accordance with Section 140 of EACCMA, 2004, the Council of Ministers may grant remission of
duty (part or full waiver of duties) for the manufacture of goods in a Partner State either:
1. goods imported for use in the manufacture of goods for export under Export Promotion Program
Office(E.P.P.O)
2. goods imported for use in the manufacture of approved goods for home consumption as the Council
may, from time to time, by notice in the Gazette, determine under Essential Goods Production
Support Program (E.G.P.S.P)
► The Duty Remission Committee under the National Treasury administers the Duty Remission Scheme.
Manufacturers who intend to enjoy this duty remission apply and are vetted prior to gazettement for
products, quantities and conditions imposed
► Remission of duty granted shall be valid for a period of twelve months from the date of the
publication of the grant in the Gazette. 30th June 2023 EAC Gazette granted duty remission
approvals for the EAC partner states for period 1 July 2023 to 30 June 2024.

Bonded Warehousing
► Enables goods to be imported and stored without payment of import duty for an initial
period of 6 months with a possible 6 months-extension on application.
► Types of warehouses: Public and private warehouses.
► Cost of warehousing excluded from customs value of imported goods.
Benefits:
• Improved cash flow
• Better security for goods due to customs stock management
• Commercial flexibility
► In EAC, Regulation 64 of the East Africa Community Customs Management Regulations,
2010 lists goods which are excluded from being warehoused e.g., acids, arms, explosives,
chalk, fireworks, matches, combustible or inflammable goods, perishable goods, dried fish,
and any other goods which the Commissioner may gazette.

Inward and Outward Processing
Inward/outward processing schemes allow manufacturers to send materials for value addition in
or out of Kenya and subsequently be returned or exported.
• Companies in the inward processing scheme import raw materials which are manufactured
locally and later exported.
• This attracts investors to use local companies for manufacture of goods which can be exported
or consumed locally upon payment of duties.
• Customs duties due on imported raw materials are covered by bond.
Repairs of selected goods

• Where goods are temporarily exported for the purpose of repair, the goods shall be released for
home consumption without payment of duty where it is established to the satisfaction of the
Commissioner that the goods were repaired free of charge on account of contractual or
statutory obligation arising out of warranty or manufacturing defect.
• If however, the warranty is not applicable, what will be subject to customs duty will be the cost
of repair + cost of any replaced parts.

Manufacturing Under Bond (MUB)
► Manufacturing under Bond (MUB) is an incentive extended to manufacturers to import plant,
machinery, equipment and raw materials tax free under bond, for exclusive use in the
manufacture of goods for export.
► Any person applying to be registered as an operator in an MUB should:

► Apply using Form C22
► Submit plans and location of the proposed bonded factory in relation to surrounding premises
► If the Commissioner grants approval, then a license is issued using Form C23 and a bond is executed by
the licensee using Form CB6
► The annual license fee is US$ 1,500; or a prorated sum where a license has been issued in the
course of a calendar year.
► A license shall expire on the thirty-first day of December in each year.
► The Commissioner may require the person applying for a license to furnish security to cover
duties on goods in the factory.
Customs Duty Exemptions
►EAC Customs Management Act through Section 114 and the Fifth Schedule provides for
exemption from duty. Duty shall not be charged on goods listed in Part A (Specific
exemptions) and Part B (General exemptions) of the Fifth Schedule subject to specified
conditions.
Provides exemptions conditions relating to goods imported or
purchased before clearance through the customs by or on behalf of
privileged persons and institutions
Specific e . g . , Goods and Equipment for Use in Aid Funded Projects,
exemptions PWDs, Diplomats etc
Provides exemptions conditions relating to specific goods imported or

purchased before clearance through the customs by any person
(Businesses ought to be eager to take advantage of general
General exemptions)
Exemptions

Special Export Zone (SEZ)
► A special economic zone (SEZ) is a gazetted area that is subject to different economic
regulations than other regions within the same country. SEZ Act, 2015 amended by Finance
Act 2023 to expand SEZ to include both Customs-controlled and non-customs-controlled
areas.
► A SEZ is a specifically delineated duty-free enclave and shall be deemed to be foreign territory
for the purposes of trade operations and duties and tariffs.
► The company in a SEZ benefits by producing and trading goods at a lower price and aims at
being globally competitive, facilitating and promoting international trade and accelerating
development within the Customs Union.
► The SEZ Authority is responsible for designing, approving, establishing, developing, operating,
promoting and regulating an SEZ.
► The incentives under SEZs are Duty exemptions, Tax exemptions, Work permit facilitation
and Protection and repatriation of profits.
Export Processing Zone (EPZ)
► An Export Processing Zone is a custom-controlled area where one is allowed to import plant,
machinery, equipment and material for the manufacture of export goods under bond, without
payment of duty. They provide a free-trade and liberal regulatory environment for the firms
involved.
► The Commissioner may permit removal of goods from an EPZ, including waste from the
manufacturing process, to be entered for home consumption.
► Goods removed from an export processing zone shall be liable to import duty based on ad
valorem basis.
► A person who removes goods from an EPZ for home use without the authority of the
Commissioner commits an offence and shall be liable to a fine of USD 5,000 or 50% of the value
of the goods, whichever is the higher, or imprisonment for a term not exceeding three years or
both; and the goods in respect of which the offence has been committed shall be liable to
forfeiture.
Global AEO Framework
• World Customs Organization(WCO) defines an AEO as a party involved in international
movement of goods that has been approved by or on behalf of the customs
administration as complying with WCO or equivalent supply chain security standards.
AEOs include manufacturers, importers/exporters, brokers, carriers, consolidators,
warehouses and distributors.
• SAFE Framework is based on four core concepts

• Harmonization of advance electronic cargo information
• Employing a consistent risk management approach to address security threats
• Inspection of high-risk cargo
• Benefits that customs will provide to business that meet minimal supply chain security best
practices.

AEO application process cycle
AEO application procedure

AEO physical ► Initial assessment: Application for AEO status with
inspection
prescribed form and requisite documents.
Risk
Assessment
► Inspection visit : the revenue authority undertakes
AEO a detailed fact finding exercise. Focus on assessing
accreditation
process the practical application of the entity’s procedural
and control measures in supply chain, customs and
Review and
submission of financial audit and customs procedures. Also to
AEO
AEO
conduct interviews with key staff.
application
Accreditation
► Risk assessment: A report is issued with

recommendations for improvements and changes
suggested. Areas of focus are financial viability,
compliance, record keeping, security and
Indicative timeline competence.
Initial Inspection Recommendation Accreditation
application ► AEO accreditation: Recognition and AEO
certification of the applicant for 3 years subject to
sustained fulfilment of conditions for the
2 to 3 4 to 6 (Based on AEO 4 to 6 accreditation (Customs does compliance checks).
weeks weeks committee weeks
meetings)
Regional and National AEO Programme in EAC
• Certification of regional AEO approved by the EAC Secretariat - Directorate of Customs
• Regional AEO is recognized by the partner states
• National AEO programme application is made to the Commissioner of Customs with attendant
documentation
Benefits of AEO programme:
• Procedural advantages - e.g. fast processing of goods at points of entry, reduced physical inspections
• Financial advantages – Savings on demurrage costs and other port charges including shipping container
leasing charges due to speedy release of cargo
• Administrative advantages - Customs may offer priority service for any customs matter e.g. allocation of
a dedicated Key Customs Account Manager (planning stages)
*An AEO importer must engage an AEO Clearing Agent to be able to enjoy the benefit of AEO status.
Post Clearance Audit
Post Clearance Audits - Introduction
 A Customs Post Clearance Audit is conducted by customs pursuant to Sections 235 and 236 of the
EACCMA, 2004.
 It focuses on a company’s customs transactions for a 5-year period (more years in case of fraud) with
a view to ascertaining compliance with customs laws and regulations.
 Types of PCA: Comprehensive (Field) and Desk Audit
 Some of the documents requested by customs are audited financial statements, customs declarations
and supporting transaction documents, evidence of payments to suppliers, bank statements, deposit
slips, transfer slips, sale agreements, material data sheets and other literature etc.
Desk Audit Process

1. Risk analysis and profiling of an importer’s transactions in Customs systems
2. Identification of 1 or 2 clear cut issues e.g., outright tariff issue
3. Issuance of desk audit findings, followed by a demand Note
4. Payment if agreeable and commencement of controversy if disagreeable

Field Audit Process
1. Notice of intention letter
2. Opening meeting (Entry Conference) - setting of rules of engagement (obligations,
timelines and expectations)
3. Field audit (Inspection of documents, books of accounts, bank statements, contracts etc.)
4. Exit conference-Discuss audit findings, areas of compliance, actions that may follow audit
outcome
5. Management Letter-Communication of final audit findings to taxpayer
6. Issuance of demand notice or closure letter depending on audit outcomes
7. Agreement on full or partial payment or instalments if importer agrees with findings
8. Commencement of the controversy process in case client disagrees

9. Follow-up activities

Issues PCA Identifies
Key issues identified during PCA
1. Valuation – Adjustments e.g royalties & license fees, assists, incoterms, terms
of sale agreement, TP adjustments
2. Wrong Classification of goods – different transaction documents with different
TIs for same item, material data sheets
3. Wrong declaration of origin of goods – Country of origin fraud
4. Lack of proof of exports vide requisite documents
5. Outstanding bond transactions and late bond cancellations
6. Falsified documentation and fraud
7. Abuse of exemption/remission/EPZ/SEZ etc.
Finance Act 2023 & EAC Gazette 2023 Updates
Finance Act, 2023
(1) Changes to Miscellaneous Fees and Levies Act, 2016
✓Reduction of Import Declaration Fees (IDF) from 3.5% to 2.5% of Customs Value
✓ Reduction of Railway Development Levy (RDL) from 2% to 1.5% of Customs Value
✓Repeal of Preferential IDF Rate of 1.5% for approved manufacturers, inputs for construction
under affordable housing programme, and imports under EAC DRS (to attract standard 2.5%)
✓IDF charges shall be 2.5 % of the customs value on ALL goods imported for home use save
for those exempted under Part A of the second schedule to the Act
✓RDL rate 1.5% will apply to ALL goods imported for home use except for those exempted
under Part B of the Second Schedule to the Act.
✓Introduction of an Export Investment & Promotion Levy (E&IP) aimed at stimulating local
manufacturing, promoting local investments, and increasing exports.
✓Reduction in Export Levy rates for hides and skins
✓Introduction of Export Levy on Molasses
Finance Act 2023
(2) Export Investment & Promotion Levy
Tariff Item Rate
2523.10.00 Cement Clinkers 17.5%
7207.11.00 Semi-finished products of iron or non-alloy steel containing, by weight, 17.5%
measuring less than 14mm in diameter of cross section measuring less than
8 mm
7213.91.90 Bars and rods of iron or non-alloy steel, hotrolled, in irregularly wound coils 17.5%
of circular cross-section measuring less than 14mm in diameter
4804.11.00 Uncoated kraft paper and paperboard, in rolls or sheets; Kraft liner; 10%
Unbleached 10% of the customs value 4804.21.00 Sack kraft paper;
Unbleached
4804.31.00 Other kraft paper and paperboard weighing 150 g/m2 or less: Unbleached 10%
4819.30.00 Sacks and bags, having a base of a width of 40 cm or more 10%

4819.40.00 Other sacks and bags, including cones 10%
Finance Act 2023
(3) Export Levy Rates
Tariff Description Previous Rate New Rate

Chapters 41 & 80% or USD 50% or USD
43 Raw hides and skins 0.55/kg 0.32/kg
Bismuth and articles thereof including waste and scrap

8106.10.00 containing more than 99.99% of bismuth, by weight N/A 20%
Other bismuth and articles thereof including waste and
8106.90.00 scrap N/A 20%
Cobalt mattes and other intermediate products of cobalt
metallurgy; cobalt and articles thereof, including waste
8105 and scrap N/A 20%
Waste and scrap of zirconium containing less than 1 part

8109.31.00 hafnium to 500 parts zirconium by weight N/A 20%
1703 Molasses resulting from the extraction or refining of sugar N/A 20%
EAC Gazette Notice No. 11 of 2023 Policy Changes
► The East African Community Council of Ministers may make changes to
the EACCMA, 2004 and EAC CET, changes that affect EAC partner states.
On 30th June 2023, the EAC Secretariat released the EAC Gazette Notice
No. 11 of 2023.
►Changes include:
• Stays of Application of CET Rates
• Increase of import duty rates to 35% in EAC CET 2022 for select items
• Duty Remission Approvals
► Changes were effective 1st July 2023

EAC Gazette Notice No. 11 of 2023- Policy Changes
Stays of Application of CET Rates
►These facilitate deviation from the use of duty rates contained in the EAC CET 2022.
► They often result in either an increase or decrease of duty rates
► Examples of products targeted for a decrease in duty rates include rice (75% to 35%),
worn clothing ($0.40/kg to $0.20/kg), refined edible oils (35% to 25%), sewing needles,
knitting needles and such items used in textile sector (25% to 0%), tools such as handsaws,
hammers, chisels (10% to 0%) etc.
► Increases in duty rates target more products. Notable ones include:

• Motor vehicles of Headings 8702, 8703, 8704 (25% to 35%)
• Furniture (35% to 45%)
• Mobile phones (0% to 25%)
• Iron and steel products (Most affected, Chapters 72,73,74 & 76), wood products
(plywood, particleboard, fiberboard), paper and paper products etc.
• Over 100 tariff lines have been targeted for increase in rates for period 1 July 2023-30
June 2024.
Tariff Item Description CET Rate Stay CET Rates & Apply
classification
6309.00.10 Worn items of 35% or USD 0.40/kg apply a duty rate of 35% or USD
clothing whichever is higher 0.20/Kg whichever is higher
7318.11.00 Coach screws 10 % & 25%
10 35% or USD 350 / MT
7318.12.00 Other wood screws
7318.13.00 Screw hooks
7318.14.00 Self-tapping screws
3903.20.00 Styrene Acrylic 0%% 10%
1507.90.00 Refined Soya Bean 35% apply a duty rate of 25% or USD 500 /
1511.90.30 Oil RDB Palm Olein MT whichever is higher
1511.90.90 Other Palm Oil
1512.19.00 Refined Sunflower Oil
1515.29.00 Refined Corn Oil
7311.00.00 Iron or steel LPG 0% apply a duty rate of 35%
cylinders
1511.90.40
Page 111
26 July 2023 IndirectRDB Palm Stearin
Tax Training 10% apply a duty rate of 25% or USD 500 /
MT whichever is higher
Tariff Item Description Current Stay of Application
classification Rate
7308.10.00 Bridges and Bridge Sections Towers 10 & 25% apply a duty rate of 35% or
7308.20.00 and lattice masts Doors, windows and USD 350 / MT whichever is
7308.30.00 their frames and thresholds for doors - higher
7308.40.00 Equipment for scaffolding, shuttering,
7308.90.91 propping or pit propping Road guard
7308.90.99 rails Other (Structural Steelwork)
9406.10.90 Prefabricated buildings - Others Various apply a duty rate of 35% or
9406.20.90 USD 350 / MT whichever is
9406.90.90 higher
Vehicles of Vehicles for transport of persons 25% apply a duty rate of 35%
Headings 8702, Vehicles for transport of goods
8703 & 8704
9403 Furniture 35% apply a duty rate of 45%
8517.13.00 Mobile phones 0% apply a duty rate of 25%

8517.14.00
Duty Remission Approvals
► The EAC Duty Remission Scheme allows waiver of duty or refrainment from exacting of duty on
gazetted inputs imported by gazetted manufacturers. The gazette stipulates items approved by the
Council to be imported at a lower rate under remission in accordance with Section 140 of EACCMA
and the EAC Duty Remission Regulations, 2008.
► The scheme is applicable to those importing raw materials for manufacture of finished products for
export outside the EAC or imports of raw materials for manufacture of goods considered as essential
and destined for domestic consumption.
► Where duty remission has been granted for manufactured goods for export and they end up being
sold within EAC, full duties per CET will apply regardless of possession of a valid EAC certificate of
origin.
► The Council has granted duty remission for various raw materials and industrial inputs for the
manufacture of finished goods in accordance with the duty remission scheme.

EAC Gazette Notice No. 11 of 2023- Duty Remission Approvals Kenya
Item EAC CET Rate Rate Under
Remission
Inputs for the manufacture/ assembly of mobile phones Various 0%
Inputs for manufacture of animal feeds Various 0%
Hard Wheat 35% 10%

Other Wheat
Inputs for manufacture of stone-coated roofing tiles Various 0%
Inputs for manufacture of wiring harnesses for vehicles and Various 0%

motorcycles
Inputs and raw materials for use in the manufacture of Various 0%
energy saving stoves
Inputs for manufacture of radiators not available in region Various 0%

Contemporary Issues in Customs
a) Africa Continental Free Trade Area (AfCFTA)
• An Africa continentwide free trade area established • AfCFTA was established under Article 2 of Part II of
through an agreement and 7 Protocols, key for Customs the African Continental Free Trade Area Agreement
being: • 54 out of 55 States have signed
• Trade in goods Protocol • 43 African states have ratified
• Trade in services Protocol • The AfCFTA commenced operation in Jan 2021.
• Dispute Settlement Protocol
AfCFTA has the following objectives:
Resolve the challenges of Creating a single continental

multiple and overlapping RECs market for goods and services,
memberships and expedite the Single with free movement of business,
Eliminate multiple
continental integration and overlapping continental persons and investments
RECs membership market
Objectives
Expanding intra African trade Enhance competitiveness at the
through better harmonization and industry and enterprise level
Policy Economies of
coordination of trade instruments harmonization scale through exploiting opportunities
across RECs and across Africa for scale production and
continental market access.

State parties (Trading partners) Non State Parties
 Eritrea
 Botswana
 Benin
 Comoros
 Guinea-Bissau
 Liberia
 Libya
 Mozambique
 Madagascar
 Somalia
 South Sudan
 Sudan

Modalities for trade in goods
► 90% of tariff lines liberalized over 5years (LDCs have 10)
► 7% additional tariff lines liberalized over 10 years (LDCs have 13 years). These
are sensitive goods.
► 3% tariff lines may be excluded.
► AfCFTA Rules of Origin published in July 2022.
Where Kenya Stands
► EAC Provisional Schedule of Tariff Concessions for the AfCFTA for Category A
products (90% of the tariff lines) gazetted on 6th September 2022
► Kenya among six countries selected to participate in the pilot phase of the AfCFTA
Initiative on Guided Trade

► Kenya exported its first consignment (batteries) under the AfCFTA agreement to
Ghana on 5th October 2022 through guided initiative established by AfCFTA

Secretariat
b) Single Customs Territory – SCT Key Aspects
► When full implementation of the EAC Customs Union will be done, EAC member states will be
One for customs purposes, which means:
► Only one declaration (import entry); No transit declarations

► Goods are accompanied by a C2 road manifest
► One regional customs transit guarantee (RCTG) bond

► Data to facilitate entry into port received in advance
► Entry into the EAC territory using any of the frontiers will be considered as entry into the Single
Customs Territory
► Goods moving from one partner state to another are TRANSFERS not Exports
► No border taxes will be paid, and ROO will not be necessary (Not yet attained)

(c) Integrated Customs Management System (iCMS) - Introduction
Integrated Customs Management ePromise
IPMIS SW
System (iCMS) is a KRA Customs system that
consolidates all the existing PG
Shipping
Agents
Customs systems into one modern,
robust and more efficient system
CCN KPC
built on the latest technology with
capacity of seamless interfaces with
other internal and external systems SCT RTCG
as need arises.
TIMS iTax
IRA Bonds/ ERP

Guarantors UPS/
CDU KWATOS

Integrated Customs Management System (iCMS)
► The purpose of iCMS is to enable application, review and approval of customs processes to be
done electronically. The benefits of iCMS include:
► Reduction in the cost of paying taxes due to expanded tax payment channels e.g. mobile
money payment
► Reduction in cargo clearance time especially for AEOs
► Paperless environment i.e., integration with systems in the supply chain, Document
Management System
► Increased Compliance due to robust risk management

iCMS Product Features
Feature Description
iCMS Manifests (SD) • Automated uploads by airlines at wheels-up
• Manual manifest creation at border stations
Declaration • Real-time Payment processing

• Automated document Pass
• Valuation Module
• Risk Engine
Release • AEO Priority Channeling

• PGA Holds
• Automatic Manifests reconciliation
Bonds • Automatic Bond replenishment
Exemptions • Online application and approval

Customs Online Auction
►A customs auction sale is the sale of goods to the highest bidder to dispose of goods not lawfully
removed from the Customs Warehouse after a certain period.
► Customs Auctions have been traditionally conducted physically from Customs Warehouses e.g.
Kilindini, Inland Container Depot, JKIA etc.
► Process largely inefficient and opaque, locking out many potential interested persons
► KRA has rolled out Online Auction (https://customsauction.kra.go.ke/home)

► Interested bidders log in to portal using iTax credentials (PIN and password)-see user guide

Q&A

Tax Seminar
Excise Duty
Presenter: Kefa Kioge
28TH JULY 2023
Agenda
Introduction Excise Duty Regulations
Key provisions
Excise Stamps and Emerging Issues

the EGMS

Introduction
Introduction
What is Excise Duty?

“An excise tax is a legislated tax on specific goods or services at purchase such as fuel, tobacco,
and alcohol. Excise taxes are intranational taxes imposed within a government infrastructure
rather than international taxes imposed across country borders.”
Excise duty, is an indirect tax on the local manufacture or importation of specified products
and supply of excisable services.
Excise Duty in Kenya administered under Excise Duty Act, 2015 and the gazetted regulations.

Introduction
Excise Duty Concept

Sin Tax - To influence consumer behaviour
and discourage consumption - tax “bad” Luxury Tax” - excise taxes are
behaviours or incentivize “good” behaviours?. applied to improve the vertical
equity of the tax system. Levying
them on commodities that can be
described as luxuries that are
consumed in higher proportions
by higher-income individuals
normally does this.
“ Excise duty can raise substantial revenue for
government at relatively low administrative or
compliance costs. It an easier source of government
revenue ,”
Key provisions
Imposition of Excise Duty
Excise duty is levied on certain goods and services

in Kenya. This tax applies to goods produced In regards to excisable services, they
within Kenya by licensed manufacturers, services encompass telephone and internet data
provided within Kenya by licensed service services, fees related to money transfer
providers, and goods imported into Kenya by services and other financial institution
registered entities. charges for their licensed activities, as well
as fees or commissions linked to loans.
Goods subject to excise duty include but not limited to:
• wines, spirits, beer, cigarettes Moreover, excise duty also applies to
• Petroleum products betting, gaming, prize competitions, and
• bottled water, soft drinks, lotteries, with the exception of charitable
• imported sugar confectionery, imported white chocolate, lotteries.
• imported gas cylinders and glass bottles
• Imported Motor vehicles etc.

Imposition of Excise Duty
Activities requiring license
manufacture of excisable goods
importation of excisable goods
supply of excisable services
use of spirit or illuminating kerosene to manufacture

goods
The carrying out of any other activity in Kenya for which the
Commissioner, by notice in the Gazette, may impose a
requirement for a license.

Goods and services not liable to excise duty
Excisable goods
Excisable goods destroyed or lost
destroyed by the due to accident Excisable
manufacturer or unavoidable services
Exported goods with written cause, excluding considered
Exempt goods Denatured
under customs approval from cases where exported if
Exempt goods listed in the S econd S chedule.
listed in the spirits for use in

Exported goods under customs control and exported services.
control and the compensation supplied from a

Second gasohol or as
Denatured spirits for use in gasohol or as heating fuel.
exported Commissioner includes the Kenyan

Excisable goods destroyed by the manufacturer with written approval from the Commissioner and supervised by an officer before removal from the factory.
Schedule. heating fuel.

services. and supervised duty payable business for use
Excisable goods destroyed or lost due to accident or unavoidable cause, excluding cases where compensation includes the duty payable from insurance, indemnity, settlement, or judicial decision.
Excisable services considered exported if supplied from a Kenyan business for use or consumption outside Kenya.
by an officer from insurance, or consumption

before removal indemnity, outside Kenya.
from the factory. settlement, or
judicial decision.

EXCISABLE VALUE
Excisable Value - Locally manufactured goods

Excisable value refers to the • The ex-factory selling price of the goods excluding VAT, cost of
value used to calculate excise excise stamps and returnable containers
duty on certain goods or
services.
ExcisableValue Importedgoods
-
• specific (per quantity)

• The customs value + import duty
• ad-valorem (percentage
based on value)
ExcisableValue services
–
• Arm’s length fee, commission or charge payable for the service

(open market value for non-arm’s length)
• The excisable value exclude VAT.

Timing of liability for excise duty
Excise duty liability for excisable goods

manufactured in Kenya arises at the time of
removal from the manufacturer's factory.
Excisable goods consumed within a licensed
manufacturer's factory are treated as removed
from the factory at the time of consumption.
Excise duty liability for excisable services arises

at the time of the supply of the services.
For petroleum products, excise duty liability
arises at the time of importation or as specified
by the Cabinet Secretary in the gazette.
For other imported excisable goods, excise duty
liability arises at the time of importation.

EXCISE CONTROL
Excisable Goods under Excise Control Obligations of Licensed Manufacturers

Excisable goods
stored in a licensed
manufacturer's
factory are under Obligations include:
"excise control" by the • Equipment for measuring
Commissioner. goods.
Licensed • Storing goods for easy
manufacturers must accounting.
maintain proper • Keeping materials and finished
Excise control ends goods accounts.
upon: a) Goods
accounting of
• Ensuring excise duty payment
removal for excisable goods for goods consumed at the
consumption in under excise control. factory.
Kenya. b) Goods are • Compliance with other specified
exported from Kenya. Regulations.
c) Goods destruction
or disposal as
authorized.

DEFINITIONS
“Other fees” includes any fees, charges or

commissions
charged by financial institutions relating to their licensed activities but does not
Section 11 of the Excise Duty Act
include interest on loan or return on loan. defines the excisable value for
manufactured goods to be the ex-
factory selling price if the excisable
Interest is not defined in Excise Duty Act, the Banking Act or Central Bank of Kenya goods are sold by the manufacturer, or,
Act.
in any other case, the open market
value of the goods at the time of
“financial institution” means— A person licensed under the Banking Act, Insurance removal from the manufacturer’s
Act, Central Bank of Kenya Act or Micro Finance Act, Sacco society registered under factory. The Act clarifies that where
the Sacco Societies Act, Kenya Post Office Savings Bank
there is a sale, an arm’s-length selling
price is acceptable for purposes of
Interest (other than interest charged to tax) is defined in the Income Tax Act as
“interest payable in any manner in respect of a loan, deposit, debt, claim or other determining the ex-factory selling price.
right or obligation, and includes a premium or discount by way of interest and a
commitment or service fee paid in respect of any loan or credit”.

EXCISE DUTY PROCEDURES
• According to Section 34 of • Licensed manufacturers or

the EDA ,a person liable to suppliers of excisable
pay excise duty must services must submit
maintain specified records monthly excise duty returns
as per the Act or in the approved form and
Regulations. manner.
• The records must be
retained for the period and Excise
in the manner specified in Record
the Tax Procedures Act. Duty
Keeping Returns
Return
Payment • The return must be
Form submitted for each calendar
• Licensed manufacturers month, not later than the
and services suppliers pay twentieth day of the
excise duty by the 20th of succeeding month,
the next month. regardless of whether any
• Importers pay upon excise duty is payable for
importation. that month.

REFUNDS
Excise Duty Refunds Refund Eligibility on Bad Debts
Excise duty paid on excisable goods

manufactured or imported into Kenya may Licensed individuals who have
be refunded under certain conditions: accounted for and paid excise duty
• Goods damaged or stolen during transportation to on excisable goods or services can
Kenya.
• Goods damaged or destroyed while under excise
apply for a refund if:
control before use in Kenya. • Payment hasn't been received from the
• Goods returned to the seller as per the contract of
sale.
purchaser for the goods or services.
• Excise duty paid on spirits or illuminating kerosene • Application for refund must be made within
used to manufacture unexcisable goods. three years from the date of sale or when
the purchaser becomes legally insolvent.

REFUNDS
Application Process and Repayment Obligation

Refund application must be:
In the prescribed form.
Lodged with the Commissioner within twelve months from the
date of duty payment (for subsection 1 applications) or within
twelve months from the date specified in subsection 3 (for
subsection 2 applications).
Amount of refund payable in accordance with the Tax
Procedures Act.
For excisable goods subsequently exported, section 138 of the
East African Community Customs Management Act, 2004
applies.
If excise duty is refunded and later recovered from the
purchaser, the licensed person must repay the refunded excise
duty to the Commissioner within thirty days of recovery.

REFUNDS
Refunds timelines
Applications should be made within 12 months from the date of payment of the duty and
in case of bad debts within 12 months from the earlier of 3 years from the date of sale or
the date purchaser became legally insolvent

Excise Stamps and EGMS
EXCISE STAMPS AND THE EGMS
Excise stamps are required for specific excisable goods,

as specified in regulations by the Cabinet Secretary.
The Commissioner may also establish the systems ,
types and descriptions of excise stamps through a public
notice The EGMS excise stamp is a revenue
assurance tool that was initiated to
deter counterfeiting, ensure
traceability of excisable goods along
the supply chain, enable accounting
to produce excisable goods
manufactured or imported and
facilitate any persons in the supply
chain to authenticate the stamps and
excisable goods

Excise Stamps
► Pursuant to the provisions of the Excise

Duty (Excisable Goods Management
System) Regulations, 2017, Kenya
Revenue Authority rolled out a new
generation of excise stamps. The aim
was to continuously review and improve
the security features of excise stamps
leveraging on new and emerging
technology.

Excise Goods Management system(EGMS)
The Excise Duty (Excise Goods

Management System) (Amendment)
regulations 2023 that effectively;
increased the rates of excise stamp fees
for bottled water, juices and any other non-
alcoholic drinks, cosmetics, alcoholic
beverages, tobacco and nicotine products
and export products.

Excise Goods Management system(EGMS)
Production
Major Online stocks Risk
Accounting
Modules management management
System
Track and
New Trace Module
enhanced • Other Market
Secure Excise capabilities surveillance
Stamp

Planning
measures
Government Scrutiny
The growing
importance of
indirect taxes to Governments
governments using modern Stricter penalty
More frequent
places more Greater scrutiny technology to Targeting fraud regimes applied
and more
pressure on tax of taxpayers’ detect non- (especially on in the case of
targeted tax
administrations affairs compliance e.g. excise stamps) non-compliance
audits
to enforce EGMS, data and mistakes
compliance. This analytics
focus is leading
to;

Planning Measures
Timely Lobbying for

Utilisation of Claim of excise
Speedy collection application of Compliance to favourable rates
refund and duty paid on
of debts in view advance ruling minimize possible or
exemption excisable goods-
of the tax point on unclear Excise penalties by KRA exemption/remis
provisions raw materials
Duty treatment sion
149

Offences and
Penalties
Offences and Penalties
Licensing and Excise Excise Control and Sanctions and General

Control. Excise Stamps Penalty
Undertaking activities without a license: Penalty equal Contravening excise control provisions: Offence for Penalties for offences under Sections 39 and 40: Fine
to double the excise duty or 5 million shillings unauthorized removal, alteration, or interference with up to 5 million shillings or imprisonment up to 3 years,
(whichever is higher). excisable goods. or both.
Licensed manufacturer using unspecified premises: Possession of non-compliant excisable goods: Offence Enhanced fine for excisable goods-related offences:
Penalty equal to double the excise duty payable on the for buying or having excisable goods without proper Fine up to three times the value of the excisable goods
goods. authority. or the maximum fine specified for the offence.
General Penalty for other violations: Fine up to 2

Deemed removal from excise control: Penalty equal to Offences related to excise stamps: Contravening
million shillings or imprisonment up to 2 years, or
double the excise duty payable on the goods. Section 28.
both.
151
7/5/2022 EY Internal Training - Tax Induction

Finance Act, 2023
Finance Act 2023
Amendment to Part I of the 1st Schedule on Excisable Goods

The Act has amended provisions related to excisable goods as illustrated below:
Description Rate of Excise Bill Proposal/Comment

Duty
Articles of plastic of tariff heading 3923.30.00 and 10% Amended to “Imported Articles of plastic of
3923.90.90 tariff heading 3923.30.00 and 3923.90.90” so
that only imported articles of plastic will
be subject to excise.
“Motorcycles of tariff 87.11 other than motorcycle Kshs. 10,000 per Amended to “Motorcycles of tariff 87.11 other
ambulances and locally assembled motorcycles” unit than motorcycle ambulances, locally assembled
motorcycles and electric motorcycles”
Effectively also excluding imported and locally
assembled electric motorcycles of 8711.60.00
from excise duty
26 July 2023
Finance Act 2023
Amendment to Part I of the 1st Schedule on Excisable Goods

The Act has amended provisions related to excisable goods as illustrated below:
Description Rate of Excise Bill Proposal/Comment

Duty
Articles of plastic of tariff heading 3923.30.00 and 10% Amended to “Imported Articles of plastic
3923.90.90 of tariff heading 3923.30.00 and
3923.90.90” so that only imported
articles of plastic will be subject to excise.
“Motorcycles of tariff 87.11 other than motorcycle Kshs. 10,000 per Amended to “Motorcycles of tariff 87.11
ambulances and locally assembled motorcycles” unit other than motorcycle ambulances, locally
assembled motorcycles and electric
motorcycles”
Effectively also excluding imported and
locally assembled electric motorcycles of
8711.60.00 from excise duty
26 July 2023
Finance Act 2023
Increase in Excise Duty Rates
No. Tariff No. Description Previous New Rate

Rate
1 3903.20.00 Imported Emulsion-Styrene Acryclic 10% 20%
2 3905.19.00 Imported Homopolymers 10% 20%
3 3905.91.00 Imported Emulsion VAM 10% 20%
4 3906.90.00 Imported Emulsion B.A.M 10% 20%
5 3907.50.00 Imported Alkyd 10% 20%
6 3907.91.00 Imported Unsaturated Polyester 10% 20%
7 7010.90.00 Imported Glass Bottles (excluding imported 25% 35%

glass bottles for packaging pharmaceutical
products)
26 July 2023
Finance Act 2023
Increase in Excise Duty Rates

No. Item Rate
1 Imported fish 10%
2 Powdered Juice Kes. 25 per kg
3 Imported sugar excluding imported sugar purchased by a registered Kes. 5 per kg
pharmaceutical manufacturer
4 Imported cement of tariff numbers 2523.10.00, 2523.21.00, 2523.29.00, 10% of Value or Kes. 1.5/kg whichever is higher
2523.30.00, and 2523.90.00
5 Imported furniture of 9403 excluding those originating from EAC 30%
6 Imported paints, varnishes and lacquers of heading 3208, 3209 and 3210 15%
7 Imported non-virgin test liner of heading 4805.24.00 25%
8 Imported non-virgin fluting medium of heading 4805.19.00 25%
9 Imported cartons, boxes and cases of corrugated paper or paper board and 25%
imported folding cartons, boxes and case of non-corrugated paper or paper
board and imported skillets, free-hinge lid packets of tariff heading
4819.10.00, 4819.20.10 and 4819.20.90
10 Imported plates of plastic of tariff heading 3919.90.90, 3920.10.90, 25%
3920.43.90, 3920.62.90 and 3921.19.90
11 Imported paper or paper board, labels of all kinds whether or not printed of 25%
tariff heading 4821.10.00 and 4821.90.00
26 July 2023
Finance Act 2023
Current New
Excisable service
Rate Rate
Telephone and internet data services
20% 15%
fees charged for money transfer services by cellular phone service
12% 15%
providers,
Fees charged for money transfer by Payment Service providers
N/A 15%
licenced under the National Payments Act,2011
money transfer services by banks, money transfer agencies and other
20% 15%
financial service providers
Betting, gaming, and prize competition 7.5% 12.5%
Lottery (excluding charitable lotteries) 7.5% 12.5%
Importation of cellular phones
10% 10%
Fees charged on advertisement on television, print media, billboards
and radio stations on alcoholic beverages, betting, gaming, lotteries
N/A 15%
and prize competitions
26 July 2023
Finance Act 2023
The Finance Act has Exempted the

following goods from Excise duty:
• Disassembled or unassembled kits
for local assembly or manufacture
of Mobile phones
26 July 2023
Page 159 26 July 2023 Indirect Tax 26
Training
July 2023
INDIRECT TAX
SEMINAR
28 July 2023 at Sawela Lodge,
Naivasha
David King’0ri
Tax Controversy
Management
Tax Controversy
What is controversy?
• This refers to a conflict arising when KRA officers conduct a tax audit or a
routine compliance check and discover that a particular taxpayer has been
non-compliant with their tax obligations.
• They then prepare an assessment report on the same stating the particulars
of the non-compliance and forward the same to the Commissioner who will
then issue a decision on the measures to be taken. If the taxpayer objects to
the decision of the commissioner, then a tax dispute arises.
Typical causes of controversy
• Gaps, ambiguity and misinterpretation of the law

• Administrative excesses by the KRA
• New laws that affect existing contracts
Governing Law
1. The Tax Procedures Act, 2015
2. The Tax Appeals Tribunal Act, 2013
3. The Tax Procedures Regulations
4. The Tax Appeals Tribunal Regulations
5. East African Community Customs Management Act
26 July 2023
Dispute escalation
Pre-Objection Process Post-Objection Process
➢ The TPA allows KRA to issue- ➢ If the taxpayer is aggrieved by the
decision of the Commissioner under the
✓ A default assessment. objection process, they can file a Notice
✓ Additional assessment. of Appeal at the Tax Appeals Tribunal.
➢ KRA conducts an audit on the basis ➢ The Taxpayer can also opt for Alternative
of the above and as per the TPA Dispute Resolution which is a facilitative
KRA can only conduct an audit for discussion between the Commissioner
a period of 5 years from the date and the taxpayer to resolve a certain tax
of the assessment. dispute without following the Court
. process.
➢ On completion an audit KRA issues
an assessment or letter of findings ➢ A tax matter can further be appealed at
to the taxpayer. the High Court on matters relating to
. interpretation of the law.
Customs Controversy
Controversy is a situation where an importer/exporter/agent disagrees with the findings of

Commissioner in relation to a customs transaction. This is a constitutional right as well as clearly
provided in EACCMA at Sec.229 and 230.
 This is the basis of payment under protest or putting up a bank guarantee to secure release of
goods prior to decision making. Sec.122(3) proviso for valuation and Sec. 106 & 107 for other
matters.
 Parties to a dispute will usually be the revenue authority and a taxpayer.
Typical causes of controversy
• Gaps, ambiguity and misinterpretation of the law
• Administrative excesses by the KRA
• New laws that affect existing contracts
Customs Controversy cont…
Dispute escalation
Customs legislation has put in place procedures for dispute resolution which give power to certain
institutions to adjudicate customs disputes.
Generally,
• KRA-Customs will raise a demand note.
• The taxpayer if dissatisfied will seeks a review of the demand note.
• Commissioner of Customs either confirms, amends or withdraws the demand note in writing in
light of evidence provided.
• If the taxpayer is dissatisfied, they will serve a Notice of Appeal to the Tax Appeals Tribunal of
their intention to appeal within statutory timelines.
Summary of Customs Dispute Resolution Process
Filing Memo of Appeal and Statement of
Facts at TAT
Review Decision Within 45 days from the date of receipt of
Customs Commissioner’s review decision
Within 30 days from
Decision Commissioner will put in a response
date of receipt of
application for Hearings will begin in TAT
review Case may be referred to ADR which must
5 be done within 90 days
1 3
2 4 6
Review Notice of Intention
Application to Appeal at TAT
Filing Appeal at
Within 30 days Within 30 days High Court
from date of from date of
Within 30 days from
receipt of receipt of review
TAT decision date
Customs decision
Decision
Case Ruling
TAT Appeal No 340 of Facts • The Respondent resorted to applying the
2020 • The case involved a post clearance audit carried out Deductive Value Method (DVM) in
by the Respondent on the Appellant following determining the transaction value of the
importation of 75ml piece of toothpaste, paid taxes product.
GlaxoSmithKline and had them released by Customs. Issues of Determination
PLC The appellant contended: • The issues for determination in the appeal
• The Appellant also contended that it applied the was whether:
Transaction Net Margin Method to determine the • Whether the Appellant used the
transfer price in accordance with the transfer pricing
Versus method rules. The Appellant’s Transfer Pricing Report
correct valuation method.
detailed the methodology applied in determining the
transfer price. In the report, import transactions The TAT ruled that;
Commissioner of categorized under sales, marketing and distribution
• The Respondent’s decision was arbitrary and not
Customs were at arm’s length..
objective. The Respondent did not demonstrate
The respondent averred: that the relationship between the Appellant and
its suppliers influenced the prices declared to
• The Appellant underpaid custom taxes on imported justify its application of an alternative method to
Delivered: 75ml tubes of toothpaste based on declared TVM at the TVM.
Great Britain Pound (GBP) 0.52 per 75ml piece of
29 October 2021 toothpaste as opposed to the uplifted customs value
recommended by the Respondent of GBP 0.94 per
75ml piece of toothpaste.
• Appellant and its suppliers are related, and the
Respondent determined the taxes payable by
applying test values considering the relationship
between the importer and exporter.
Case Law
TAX APPEAL E141 OF
2020
FACTS ISSUE FOR DETERMINATION
Commissioner of Keppel Investments (the Respondent) had imported • The issue for determination in the appeal was
goods and valued them using the transactional value
Customs and whether:
method.
Border Control
The Commissioner reviewed the imports and made • The Commissioner was justified in the decision
the finding that they were undervalued and revalued to revalue the goods
Versus them using the transactional value of similar goods.
The Respondent opposed the demand arguing that The High Court ruled that;
Keppel Investments
the values were reasonably supported by commercial • The transactional value method is the first port of
Limited invoices, certificates of conformity, etc. Call in determining the customs value, and it is
only when this cannot be determined or satisfied
The Respondent also adduced quotes from other that the Commissioner can rely on the other
suppliers, which showed that some of them were methods of valuation. In this case, the Respondent
Delivered: selling the goods at prices that were even lower than had sufficiently proven the reliability of
16 June 2023 what the Respondent had declared. the transactional value, and the Commissioner
therefore erred in revaluing the goods.
Case Law
TAT APPEAL 391 FACTS
OF 2022 Cent Traders (the Appellant) was importing paper and The Appellant was of the view that the revision of the
paperboard products under tariff code 4802.56.00. In duty rate to 25% in June 2017 was an error and
Cents Traders the period relevant to the appeal, the 2012 CET was in continued to declare the goods using the rate of 10%.
effect, and was subsequently updated to the 2017 CET. The Commissioner on the other hand took the position
Under the 2012 CET, the duty rate for HS Code that the duty rate had been revised to 25% and
4802.56.00 was 25%. By a gazette notice Issued in demanded for underpaid duties.
2014, the rate was amended to 10%.
Versus ISSUE FOR DETERMINATION
In June 2017, the CET was modified to model it along • The issue for determination in the appeal was what
Commissioner of the correct duty rate was.
the lines of the 2017 version of the Harmonized
Customs and Commodity Description and Coding System version 2012
Border Control The Tribunal ruled that;
of the WCO. The gazette notice effecting the change
stated that the change was merely to streamline the
• The amendment of tariff rates pursuant to the
Protocol for the Establishment of the EAC is effected
Delivered: commodity descriptions. The tariff rates would not be
by causing the directives to be published in the
affected. However, the 2017 version stated the duty rate
9 June 2023 for HS Code 4802.56.00 as 25%. The duty rate was
Gazette
• The procedure was not followed when the change was
revised downwards to 10% by a provision in a gazette introduced in the 2017 CET meaning that the 2014
notice published on 30 June 2018, but the provision was gazette notice reducing the tariff rate to 10% was
subsequently deleted by a gazette notice published in essentially never revoked.
August 2018.
Case Law
TAT APPEAL No 13 FACTS
OF 2021 The Commissioner reviewed the books of account of Pesapal The Respondent stated that the Appellant offers technology
(Appellant) and assessed an additional tax liability of Kshs. solution upon which financial services can be offered. That
233,252,949.00.The Appellant objected and the Respondent Pesapal does not lend, store or receive money. That Pesapal
Pesapal Limited issued its objection decision on 26th November, 2021. enables all these processes to be undertaken from a
technology enabling perspective. The objection decision
Appellant’s Case provided a schedule of taxes due amounting to Kshs.
76,836,162.00 principal tax and Kshs. 33,982,992.00 in
The Appellant’ ground for appeal was that the Respondent penalties and interest.
erred by charging VAT on the commission earned. That the
Versus commission is earned as a consideration for providing financial ISSUE FOR DETERMINATION
services which are exempt from VAT in accordance with the
• Whether the Respondent erred by raising the VAT
Commissioner of First Schedule Part II Paragraph 1(m) of the VAT Act, 2013.
tax assessments on the Appellant.
Domestic Taxes The Appellant averred that it provides a financial service on
behalf of its merchants on a commission basis and as such the The Tribunal ruled that;
commission is exempted from VAT in accordance with the First •The Appellant is not a financial service provider as
Schedule of the VAT Act 2013 (“the Act”). envisaged under the VAT Act and therefore does not qualify
Delivered: for exemption within the context and meaning of sub-
Part II, Schedule 1, Paragraph 1(m) of the Act stipulates that paragraph 1(b) or sub-paragraph 1(m) of the Paragraph 1
26th May 2023 financial service providers which offer services listed in the Part II of the First Schedule to the VAT Act.
Schedule, on behalf of another on commission basis, are
exempted from paying VAT. Paragraph 1(m) of the First
• The appeal was set aside and the Respondent’s objection
Schedule to the VAT Act, 2013 exempt supplies for –
decision upheld.
“(m) The provision of the above financial services on behalf of
another on a commission basis.”
Q&A
Tax Seminar
Tax Technology Transformation
Presenter: Kefa Kioge
28TH JULY 2023
INTRODUCTION
INTRODUCTION TO TTT
In today's rapidly evolving business

landscape, tax departments are facing
increasing complexities and
challenges. Embracing technology is
becoming essential to drive efficiency,
compliance, and strategic decision-
making…
Let's explore how Tax Technology

Transformation can revolutionize your tax
function
26 July 2023
INTRODUCTION TO TTT
Technology defines and underpins the

workings of the new digital tax function
IT makes it possible to answer the

mandates of the global digital economy.
Managing tax big data enables efficient

compliance and provides insights that
facilitate strategic business decisions.
26 July 2023
DIGITAL TAX FUNCTION
Ready or not, the Your There is an The new tax E ‘s tax technology
tax function is organization upside to this paradigm is and transformation
rapidly becoming must adapt to disruption, which centralized, well- (TTT) is organized
digital as well. keep pace we call governed, and to help you navigate
connected tax. simplifies tax the rapid innovation
data. It drives in operations,
value, manages harness the
costs, and potential of data,
mitigates risk for
the enterprise.
26 July 2023
EY TAX TECHNOLOGY AND
TRANSFORMATION
THE SECOND WAVE OF DIGITIZATION
Robotics
Cloud Computing
Mobile usage AR/VR The Second Wave of Digitization

is reshaping industries and
businesses worldwide.
Advanced
3D •Represents the convergence of
analytics
Printing
advanced technologies, driving
transformative changes
IoT Artificial
Intelligence
179
26 July 2023
DIGITAL TAX ADMINISTRATION:
Benefits of Digital Tax Administration:
Faster tax processing and reduced
• Tax authorities embracing Enhanced administrative burden.
digital technologies for Efficiency: Real-time access to tax data for

authorities and taxpayers.
efficient tax management.
• Streamlining processes,
enhancing accuracy, and Minimized errors and improved data integrity.
Increased
reducing manual Automated calculations for precise tax
intervention. Accuracy: assessments.
Leveraging technology for innovative

Innovation in tax models.
Taxation: Adapting to the changing business

landscape.
26 July 2023
TECHNOLOGY WAVE
Emergence of New Technologies Businesses Adopting Digital

Strategy
AI, IoT, blockchain, and automation Embracing digital transformation for
revolutionizing tax processes. competitive advantage.
Smart data analytics for better insights and Digitalization of financial and tax operations.
decision-making.
26 July 2023
TRENDS IN TAX TECHNOLOGY AND TRANSFORMATION
Technology Transforming
Digital tax
wave tax policies
administration
1 Tax
2 Emergence of New
3 Evolving legislative
technologies and landscape demanding
authorities
businesses increased
going digital
adopting digital transparency and
strategy compliances
26 July 2023
TRANSFORMING TAX POLICIES
Benefits of Digital Tax Administration:
►Tax authorities embracing

digital technologies for Tax regulations adapting
efficient tax management. Evolving Legislative

to the digital economy.
Increased focus on data
Landscape: transparency and real-
time reporting.
►Streamlining processes, Stricter reporting
enhancing accuracy, and Increased requirements for

businesses.
Transparency and
reducing manual Compliances:
Greater emphasis on tax
compliance and risk
management
intervention.
26 July 2023
EY TAX TECHNOLOGY AND TRANSFORMATION
• Tax Analytics & Reporting

Enhancement
• Tax Technology Program Mobilisation
• Tax Operating Model Transformation
• Tax Applications-as-a-Service
• Tax Systems Implementation &
Configuration
• Emerging Tax Technology Services:
RPA, AI, Blockchain, Cloud Solutions,
Data Lake Development, Business
Intelligence
• Custom Tax Technology Application
Development & Deployment
• Tax Technology Strategy & Road
Mapping
26 July 2023
EY TAX TECHNOLOGY AND TRANSFORMATION
DATA EVOLUTION IS AT THE CENTRE OF MOST HISTORICALLY THE TAX RETURN WAS THE PUT SIMPLY, TAX AUTHORITIES ARE NOW
MODERN TAX AUTHORITIES, INCLUDING KENYA FOCAL POINT OF TAX AUTHORITY REVIEWS AND DIRECTLY ACCESSING, OFTEN IN REAL TIME, THE
REVENUE AUTHORITY. AUDITS, HOWEVER, THE UNDERLYING DATA SOURCE DATA UNDERPINNING THE TAX RETURN
SUPPORTING THE TAX RETURN IS NOW TO IDENTIFY UNPAID TAXES.
BECOMING MORE IMPORTANT.
26 July 2023
DATA DRIVEN
CHANGE
WITH DATA
ANALYTICS
DATA DRIVEN CHANGE
This fundamental change in how

tax is administered and collected This is evident to a certain extent in
may result in certain tax returns the TIMS modernisation regime
becoming redundant and being EY has embarked on tech tools
which was introduced in this year
replaced with real time or near that will benefit our clients leading
by KRA, while similar measures in
time reporting regimes, whereby to improved compliance
relation to others are thought to be
the tax authorities prepare a draft on the horizon.
return based on taxpayer data.
26 July 2023
DATA DRIVEN CHANGE
DATA ANALYTICS
26 July 2023
DATA ANALYTICS
• Tax departments can implement analytics

for VAT, financial reporting, and TP
benchmarking to detect risks and reduce
controversies, saving costs.
• Data analytics helps in testing tax-related
data, spotting outliers and trends that
require further investigation.
• Analysis can cover related party
transactions, ETR evaluation, and book-to-
tax differences.
26 July 2023
What EY can do for you
26 July 2023
GLOBAL VAT
RECONCILIATI
ON TOOL
EY GVRT- Manage VAT/GST risk effectively
• A cloud-based, scalable platform

for comprehensive data
preparation, reporting and
transaction processing to tax.
26 July 2023
EY GVRT- MANAGE VAT/GST RISK EFFECTIVELY
Load transactional data

• Transactional data is uploaded from multiple
accounting and finance systems directly into the tool.
Test tax technical accuracy

• Alternative VAT/GST codes help revalue transactions,
track and update changes at the source
Review and correct

transactions
• Alternative VAT/GST codes help revalue transactions,
track and update changes at the source.
26 July 2023
EY GVRT - Manage VAT/GST risk effectively
Operate Improve Drive
Operate more rapidly Improve data Drive value and

by accuracy and use transformation
• Automating your indirect • Use resources more • Leverage EY global
tax return production efficiently and draw on a experience and business
• Using analytics routines to broad, insightful view into insights to stay up to date,
flag anomalies and your data by consolidating anticipate and proactively
transactions requiring multiple sources and respond to the ever-
review automating exception changing tax regulations
reporting. impacting your
organization
26 July 2023
EY TOOLS
GLOBAL COMPLIANCE & REPORTING(GCR)
Services
From "record to report," GCR teams operate at the intersection of finance and tax,
delivering accuracy and efficiency in over 150 jurisdictions.
Services include Payroll, Bookkeeping, Accounting, Business Tax Compliance, Tax

Accounting, Indirect Tax Compliance, and Statutory Reporting.
Industries
We cater to businesses across various industries, ensuring compliance with tax

regulations worldwide.
26 July 2023
EY Global Tax Platform (GTP)
•Real-time global data: Offers insights into opportunities,
obligations, and risks for multinational organizations.
•End-to-end platform: Redefines tax operations with
innovative solutions and support for tax business needs.
•Powered by Microsoft Azure: Utilizes cloud technology for
GLOBAL safe and secure data gathering and storage.
TAX
•Advanced analytics: Common data platform, dashboards,
and reporting for informed decision-making.
PLATFORM •Integration with tax reporting software: Provides coverage

for global tax challenges, enabling cost-efficient solutions.
•Focus on value: Allows tax functions to concentrate on
driving value through planning.
26 July 2023
EY GVRT Demo
► Demo
EY Global VAT Reporting Tool
26 July 2023
Concluding
thoughts: Is tax
technology a
necessity or an
opportunity?
26 July 2023
EY | Building a better working world
About EY
EY exists to build a better working world, helping to create long-term
value for clients, people and society and build trust in the capital
markets.
Enabled by data and technology, diverse EY teams in over 150
countries provide trust through assurance and help clients grow,
transform and operate.
Working across assurance, consulting, law, strategy, tax and

transactions, EY teams ask better questions to find new answers for the
complex issues facing our world today.
EY refers to the global organization, and may refer to one or more,

of the member firms of Ernst & Young Global Limited, each of which is a
separate legal entity. Ernst & Young Global Limited, a UK company
limited by guarantee, does not provide services to clients. Information
about how EY collects and uses personal data and a description of the
rights individuals have under data protection legislation are available
via ey.com/privacy. EY member firms do not practice law where
prohibited by local laws. For more information about our organization,
please visit ey.com.
EY is a leader in shaping the financial services industry

Over 84,000 EY professionals are dedicated to financial services,
serving the banking and capital markets, insurance, and wealth and
asset management sectors. We share a single focus — to build a better
financial services industry, one that is stronger, fairer and more
sustainable.
© 2023 EYGM Limited. All Rights
Reserved. EYG no. 008620-20Gbl

ED None
In line with EY’s commitment to minimize its impact on the

environment, this document has been printed on paper with a high
recycled content.
This material has been prepared for general informational purposes

only and is not intended to be relied upon as accounting, tax, legal or
other professional advice. Please refer to your advisors for specific
advice.
ey.com
26 July 2023

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INDIRECT TAX

By Stephen Ndegwa/Boaz Musina

Page 4 26 July 2023 Indirect Tax Training

Introduction VAT (Electronic Tax Invoice)

VAT Provisions VAT (Electronic, Internet &

VAT withholding Finance Act 2023

VAT Refunds VAT planning

Page 5 26 July 2023 Indirect Tax Training

Page 7 26 July 2023 Indirect Tax Training

Charge to Tax (Section 5) VAT Registration (Section 34)

Determining a taxable supply

Page 9 26 July 2023 Indirect Tax Training

Page 10 26 July 2023 Indirect Tax Training

► The date a certificate is issued by an Architect, surveyor or any person

► The date all or part payment is received for the supply

Page 11 26 July 2023 Indirect Tax Training

Page 12 26 July 2023 Indirect Tax Training

Restricted Input Tax

► Entertainment, restaurant and accommodation services**

Page 13 26 July 2023 Indirect Tax Training

Input Tax Apportionment

▪ Full deduction of input tax in relation to taxable supply.

▪ Full exclusion of input tax in relation to exempt supplies.

▪ Apportionment of shared input tax using the following ratio:

Deductible VAT = Value of taxable supplies X Input tax

Value of Total Supplies

Page 14 26 July 2023 Indirect Tax Training

Page 15 26 July 2023 Indirect Tax Training

Reverse VAT (VAT on Imported Services)

► Examples of imported services include:

► Consultancy services offered by providers outside Kenya to importer

► Management services offered by providers outside Kenya to importer

► Supply of imported services to an importer is deemed as self supply.

Reverse VAT (VAT on Imported Services)

❖ If a person is making mixed supplies(taxable and exempt supplies), he would be required

Page 17 26 July 2023 Indirect Tax Training

Page 18 26 July 2023 Indirect Tax Training

► Only 2% of the taxable amount is to be deducted and remitted to KRA.

Page 19 26 July 2023 Indirect Tax Training

► Tax payers are allowed to claim VAT refunds in relation to:

Page 23 26 July 2023 Indirect Tax Training

► An invoice should have the following;

Page 24 26 July 2023 Indirect Tax Training

Page 26 26 July 2023 Indirect Tax Training

► Subscription-based media including news magazines and journals.

Page 27 26 July 2023 Indirect Tax Training

► Speedy collection of debts

► Application for VAT refunds where applicable

► Deferral of input tax

► Compliance to minimize possible penalties by KRA

► Automation and use of technology (GTP & GVRT)

► Regular tax trainings and tax health checks

Page 29 26 July 2023 Indirect Tax Training

registered person” with “a registered or unregistered” person.

Page 31 26 July 2023 Indirect Tax Training

2. Clarification on the time of supply of goods and services

Page 32 26 July 2023 Indirect Tax Training

4. Expansion of the scope of taxable supplies to include compensations for

5. Conditions for claim of VAT refunds on bad debts

Page 34 26 July 2023 Indirect Tax Training

5. Conditions for claim of VAT refunds on bad debts

Page 35 26 July 2023 Indirect Tax Training

6. Clarification on Keeping of records